How Bankers From Goldman Sachs Came to Dominate the U.S. Treasury

Wall Street insiders, like Trump's pick Steve Mnuchin, have only occupied the government's top money job in recent administrations. The New Deal and the Federal Reserve exist thanks to men without a banking pedigree.

No red-white-and-blue real American will admit it, but we feel a bit left out with no royalty or aristocracy to kick around. And 2016 has been no good at all for our political dynasties, which took a double beating when the Donald-elect vanquished a Bush in the primary and a Clinton in the general election.

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Well, at least we have the princes of Goldman Sachs, the Windsors of Wall Street, back on center stage. For it was a restoration at Treasury, wasn't it, when from the Tower on Fifth it was announced yesterday that Steve Mnuchin, former partner at Goldman Sachs & Co. and son of a former partner at Goldman Sachs & Co. would be nominated as the republic's 77th Secretary of the Treasury ?

Surely Treasury ought to belong to Wall Street and, therefore, first dibs thereon ought to go to Goldman (unless J.P. Morgan wants in). Except the numbers, dear reader, tell us that Wall Street occupation is a Johnny-come-lately phenomenon when it comes to the top government finance job, and the Goldman folks are arrivistes of the first order.

It all started according to plan. The first Secretary of the Treasury was the Founding Father of the moment, New York's own Alexander Hamilton. Founder of the Bank of New York, he was oldest of old school Wall Street. But his successor, Oliver Walcott, wasn't even a banker at all, rather a lawyer and judge, setting the trend for the next 70 years, which saw 25 more Secretaries of the Treasury and not a single banker, not to mention Wall Streeter.

It seems impossible, but counting Mnuchin, there have only been 12 Secretaries of the Treasury with private sector banking experience, and only eight of them have come from Wall Street.

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The next Treasury Secretary with any banking experience at all was Hugh McCulloch, appointed by Lincoln weeks before he was assassinated, and he barely qualifies, as he was only the manager of the Fort Wayne branch of the Bank of Indiana.

President-elect John F. Kennedy with members of his cabinet, Washington DC, 1961.

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It seems impossible, but counting Mnuchin, there have only been 12 Secretaries of the Treasury with private sector banking experience, and only eight of them have come from Wall Street. The next Wall Street-pedigreed Secretary after Alexander Hamilton was Douglas Dillon, chairman of Dillon, Read & Co., appointed by President Kennedy in 1961 as the token Republican in his senior cabinet.

Thirteen years later, William E. Simon, a senior partner at Salomon Brothers, was appointed by President Ford; Donald Regan, chairman of Merrill Lynch, was Secretary of the Treasury for all of President Reagan's first term. Nicholas Brady, another Dillon, Read chairman, served as Reagan's last and held the post throughout President George H. W. Bush's presidency.

This brings us to last two and latest from Wall Street—and the only from Goldman Sachs: Robert Rubin who served President Clinton from 1995 through 1999, and Hank Paulson who served George W. Bush during the 2008 Financial Crisis. And while Rubin's and Paulson's tenures were noteworthy, with one presiding over the dismantling of Glass-Steagall and the deregulation of the financial industry and the other wrestling with Wall Street's most serious panic since the Great Depression, Goldman Sachs is only tied with Dillon, Read for most alumni holding the position. (If confirmed, Mnuchin would break that tie).

What these number perhaps most reveal is how many august Treasury Secretaries came from outside the money business. Carter Glass, President Wilson's Secretary of the Treasury, was a small town newspaper publisher who never finished eighth grade. He also had the greatest financial mind of any person who ever held the post: He financed World War I, not only for the United States but our allies as well; wrote the Federal Reserve Act; and, later when he was a U.S. Senator, drafted the Glass-Steagall Act.

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And if you're interested in dysfunctional transitions, FDR announced his Treasury appointment by short wave radio from Vincent Astor's yacht in Biscayne Bay.

William Woodin, FDR's first Treasury Secretary, came up with the bailout plan that ended the bank runs that collapsed the financial system in 1933. He was a railcar manufacturing executive whose appointment was roundly criticized by the financial press. (And if you're interested in dysfunctional transitions, FDR announced the appointment by short wave radio from Vincent Astor's yacht in Biscayne Bay, where he fished and sailed for a week while the nation's banks failed. They (including President Hoover) begged President-elect FDR to make a statement to calm the markets and the public, but to no avail.)

Henry Morgenthau Jr. and President Frankly D. Roosevelt in 1941.

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President Roosevelt's next appointment for Treasury (following Woodin's death from throat cancer in 1934) was the most controversial of them all. Henry Morganthau, Jr. was the slacker son of a politically connected wealthy New York real estate developer. Despite having all the silver-spoon advantages imaginable, Henry Jr. never graduated college, dropping out of Cornell twice. He tried his hand at agriculture and lost a small fortune as a failing Christmas tree farmer.

He did, however, have the good fortune to have that farm located in close proximity to FDR's estate in Hyde Park and the two became fast friends. After appointment to minor agricultural-related patronage positions in FDR's gubernatorial and presidential administrations, Morganthau was nominated to the top cabinet position, to howls of outrage from the press and Congress. Morganthau would serve for eleven years and brilliantly finance the New Deal and World War II.

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